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EXPORTS-ship

Exports

Exports account for a significant portion of sales for many U.S. based companies. The ability to compete successfully in the global marketplace has become a necessity. So has the need for the credit function to think, act and manage credit risk globally. The procedure for making an export credit decision includes some of the same steps as are used in making domestic open account credit decisions.

In addition to the traditional five Cs of credit analysis, other elements of export credit decision-making include: Country risk; Foreign exchange risk; and the Risk of being misunderstood. Here is an example: If a foreign country refuses to allow companies located there to make payments in US dollars to foreign suppliers, you will likely not receive timely payment irrespective of how creditworthy your foreign customer may be.

Michael Dennis, MBA, CBF, LCM

Michael Dennis, MBA, CBF, LCM

Each of these three export related risks can seriously affect when or if you receive payment. Understanding and managing these three risks is at least as important as evaluating the five Cs.

By Michael C. Dennis. Michael is a consultant and the author of the Encyclopedia of Credit, a free, fast online resource: www.encyclopediaofcredit.com

One Response to “Exports Fuel Business Growth – Michael Dennis, CBF”

  1. Guy Nishida says:

    Michael,

    The silence is broken. I’ve missed your articles. Glad to see you’ve returned. One small addendum to your remarks about being misunderstood. On open terms accounts, it is very important for you and your buyer to agree on what the terms mean. It is not uncommon for a customer to begin the aging from the date of receipt of material or date of arrival at port. In later case, your aging includes the normal terms plus the transit time, not insignificant when shipping by ocean. In the former case, you are adding the transit plus the Customs import clearance time. In some countries, that can add a week or more to the aging of the invoice. Your standard 30 or 60 day terms become net 60 or 90 day terms. If your bank even allows foreign receivables as part of your borrowing facility, you may still be unable to count this sale if it ages beyond the 60 day date.

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